OPEC Sit Down Stirs Oil Speculation
Alvexo | Nov 24, 2015 12:21PM ET
Next week may bring new patterns to the crude-oil market, as OPEC is scheduled to meet in order to discuss the industry outlook for the cartel on December 4. Recent reports indicating that maximum global capacity is rapidly approaching has seen sentiment change in the once stubborn cartel, which has thus far ignored production capacity targets after previously agreeing to let the market set the price of the commodity. Traditionally, OPEC has meddled with oil prices by shuttering or inflating production within their constituent countries, but no more. The group’s total production is currently over the 30 million barrels per day target and threatens to increase as Indonesia seeks to rejoin the group after leaving back in 2009. Without the willingness to control production and therefore balance the price of oil, the result has been drastic price lows spurred by the notion that lower profits are better than lower market share. The new operating philosophy for OPEC is probably brought on by the rapidly evolving production capabilities in competitor countries like the United States and Russia, who must also cut production in order for Saudi Arabia to take it into consideration, according to Saudi officials.
Saudi Arabia is the largest oil-producing member of OPEC and thus has a large influence in the direction of the group. This recent plan to weather price competition has however alienated other OPEC members who are less capable of maintaining stability in the challenging environment, such as Venezuela and Algeria, the former of which has recently pleaded with the cartel to adopt price balancing measures. The Oil Minister in Venezuela, Eulogio Del Pino, stated that $88 per barrel is required to reduce stress on the industry and that if the cartel fails to act prices could fall to the $25 dollar range. Further compounding the issue is Iran, which has adopted the strategy to maximize production in an effort to steal market share away from other countries to make up for time lost during economic sanctions. The recent turnaround in sentiment comes in the form of an announcement from OPEC that they are sitting down to review the market’s stability, though an outcome like a cut to production is not likely.
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